Oil and Gas Lawyer Blog
In a previous post I discussed a recent Texas Supreme Court case, Exxon v. Emerald, reversing a multimillion-dollar judgment against Exxon for intentionally sabatoging wells so that they could not be re-entered. This nudged me to look at other royalty-owner related cases handed down by the Texas Supreme Court over the last ten years. The court’s record is not a good one for royalty owners. Highlights of the Court’s work:
HECI v. Neel (1998). HECI sued an adjacent operator for illegal production on an adjoining lease that damaged the common reservoir underlying both leases, and recovered a judgment for more than $3.7 million. HECI did not inform its royalty owners of the suit and did not share any of the judgment proceeds with the royalty owners. When HECI’s royalty owners found out about the suit, they sued HECI to recover their share of the judgment. The Supreme Court held that the royalty owners had waited too long to bring their suit, even though they did not find out about the suit until five years after the trial. The Court held that the royalty owners should have known that the adjacent operator was damaging the common reservoir by its operations.
Yzaguirre v. KCS Resources (2001). Plaintiffs were royalty owners who received royalties under a lease operated by KCS. KCS sold its gas under a 20-year contract with Tennessee Gas Pipeline, and the price under the Tennessee contract greatly exceeded the spot market price of the gas. But KCS paid royalties based on the “market value” of the gas, using comparable spot sale prices, well below the price it received from Tennessee. The Court held that KCS did not owe royalties based on the Tennessee price — and, it held that the Tennessee contract was not even competent evidence of the market value of the gas.
Wagner & Brown v. Horwood (2001). Plaintiffs sued Wagner & Brown for deducting excess compression fees from their royalties that were charged by a Wagner & Brown affiliate. The Supreme Court ruled that all claims for royalties paid more than four years prior to the suit were barred by the four-year statute of limitations. Plaintiffs argued that Wagner & Brown had falsely told them, when they inquired about the fees, that the fees were only 12 cents per mcf, rather than 25 to 30 cents, so Wagner & Brown should not be allowed to rely on the statute of limitations. The Court rejected this argument, holding that the Plaintiffs’ claims were not “inherently undiscoverable,” even if Wagner & Brown lied to them about the charges.
Natural Gas Pipeline Company of America v. Pool (2002). Plaintiffs sued NGPL claiming that two leases had terminated due to a lack of production. The trial court entered a judgment for lessors on a jury verdict, which the Court of Appeals affirmed. The Supreme Court reversed. It held that, if the leases had terminated for lack of production, the lessee had subsequently re-acquired title to the leases by adverse possession. This is the first case in the country to hold that adverse possession statutes apply to recover title to an expired oil and gas lease.
In re Bass (2003). Plaintiffs owned a royalty interest under a ranch owned by the Bass family. The Basses refused to lease their land for oil and gas exploration, and the royalty owners sued them for breach of an implied duty to develop the land. The Supreme Court held that the Basses had no implied duty to lease or develop the minerals under their property.
Union Pacific Resources Group v. Hankins (2003). Royalty owners in Crockett County brought suit against Union Pacific, alleging that UPRG was selling gas to an affiliated company at a low price and then reselling it at a higher price, but paying royalties on the lower price. The plaintiffs sought to make the case a class action brought on behalf of all royalty owners in UPRG wells in Crockett County.The Supreme Court held that the case could not be brought as a class action because the royalty language in the leases could be different.
Kerr-McGee Corp. v. Helton (2004). Kerr-McGee drilled a well, the Holmes 17-1, in Wheeler County which produced more than 8.7 billion cubic feet of gas. The well was located 660 feet from the Heltons’ lease. Kerr-McGee did not drill an offsetting well on the Helton lease, and the Heltons sued Kerr-McGee for failing to protect their lease against drainage from the Holmes 17-1. The trial court awarded $860,000 in damages, and the Court of Appeals affirmed. But the Supreme Court reversed, ruling that the plaintiffs should have no recovery. The Court held that the plaintiffs’ expert witness had not adequately explained how he had measured the amount of gas that would have been produced from a well on the Helton lease if Kerr-McGee had drilled it; the Court said that there was “simply too great an analytical gap between the data [relied on by the expert] and the opinion proffered.” The Court refused the plaintiffs’ request to remand the case for a new trial.
Forest Oil Corp. v. McAllen (2008). In 1999, Forest Oil settled a lawsuit with McAllen and others who own the McAllen Ranch in Hidalgo County, over claims for royalties and leasehold development. In 2004, McAllen filed a separate suit against Forest to recover for damages caused by burying mercury-contaminated and radioactive material on the ranch. Forest claimed that McAllen was obligated by the 1999 settlement to arbitrate any disputes over its operation of the lease. McAllen claimed that he was fraudulently induced to sign the settlement and was not bound to arbitrate his claims. The Supreme Court held that McAllen was contractually bound to arbitrate. It held that language in the settlement agreement, providing that McAllen was not relying on any statement or representation of Forest in executing the agreement, prevented McAllen from arguing that he was fraudulently induced by Forest to sign the settlement agreement. In so holding, the Court overruled a prior case it had decided in 1997, in which it held that a settlement agreement must “clearly express .. the parties’ intent to waive fraudulent inducement claims” in order to preclue a fraudulent inducement claim.
I was unable to find any Supreme Court case in the last ten years that ruled in favor of royalty owners.